US regulators sue biggest crypto exchange Binance, alleging violations of US financial laws and seeking injunction
US regulators have filed a lawsuit against leading cryptocurrency exchange Binance, alleging that the company has been doing business in the country illegally and seeking fines and a permanent ban.
The Commodity Futures Trading Commission (CFTC) said in the civil suit filed on Monday that a large proportion of Binance’s trading volume and profits derive from “extensive solicitation of and access to” US customers.
Binance denies that it does business in the US, saying it has made “significant investment” in controls that specifically ban customers with US identity documents or mobile phone numbers, for example.
But the CFTC said those controls were only introduced in 2021, and alleged that at that time Binance advised US customers how to circumvent them through the use of VPNs and shell companies.
The CFTC claimed tha Binance’s own documents for the month of August 2020 showed the firm took in $63 million (£51m) in fees from derivatives transactions and that about 16 percent of its accounts were identified as being held by US customers.
“Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under US law. But Binance, Zhao, and Lim have all chosen to ignore those requirements,” the CFTC’s complaint said, naming Binance chief executive Changpeng Zhao and former chief compliance officer Samuel Lim.
The lawsuit accuses Binance of breaking numerous US financial laws, including those regulating money landering.
Binance said the lawsuit was “unexpected and disappointing”, but said it would “continue to collaborate with regulators in the US and around the world”.
“The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime,” the company said.
— CZ 🔶 Binance (@cz_binance) March 27, 2023
The civil lawsuit, filed in US federal court in Chicago, asked for restitution, fines, and permanent bans on trading and registration in the US.
“Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors,” said CFTC chair Rostin Behnam, alluding to Binance’s claim that it has no central headquarters.
“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance.”
Zhao’s initial public response was to write “4” on Twitter, a reference to a post at the beginning of the year laying out his personal “Do’s and Don’ts for 2023”, number 4 of which was “Ignore… fake news, attacks, etc.”
Will try to keep 2023 simple. Spend more time on less things. Do’s and Don’ts.
3. Product & ServiceRead also : Terra Co-Founder Do Kwon To Be Extradited
4. Ignore FUD, fake news, attacks, etc.
In the future, would appreciate if you can link to this post when I tweet “4”. 🙏
— CZ 🔶 Binance (@cz_binance) January 2, 2023
He later posted a longer blog post, saying the lawsuit “appears to contain an incomplete recitation of facts, and we don’t agree with the characterisation of many of the issues alleged in the complaint”.
He added that “we do not expect everything to be easy” but that “we do not shy away from challenges”.
The largely unregulated crypto industry has faced increasingly tight scrutiny from regulators since the collapse of two major crypto operations last year – the TerraUSD “stablecoin” and FTX, formerly another major exchange – taking about $2tn of digital wealth with them.
Last week Coinbase, the biggest US-based crypto exchange, disclosed that it had been notified of a planned lawsuit by the Securities and Exchange Commission (SEC) over alleged violations of a range of investor-protection laws.